Panamanian President Juan Carlos Varela delivers a speech in Panama city, Panama, June 12, 2017. Panamanian President Juan Carlos Varela announced on Monday that the Republic of Panama and the People's Republic of China have established diplomatic relations. (Xinhua/Panama's Presidency)

China and Panama on Tuesday established formal diplomatic relations in a historic move that will herald a new chapter for comprehensive and mutually beneficial cooperation.

Panamanian President Juan Carlos Varela announced the move in the nationally televised address Monday, saying he is convinced that this is "the correct path" for his country.

"The People's Republic of China has always played a relevant role in Panama's economy," he said.

China is the second-biggest user of the Panama Canal and the leading provider of merchandise to a free-commerce zone in the Panamanian city of Colon, according to the president.

During a press briefing in Beijing, Chinese Foreign Minister Wang Yi said that Panama is an important Latin American country, and the Chinese people value the traditional friendship with the Panamanian people.

He said the political decision made by President Varela and the Panamanian government meets the fundamental interests of the country.

"We both agreed that the establishment of bilateral ties will bring broad prospects for us to expand the comprehensive cooperation of mutual benefits," he said.

The two sides will engage in friendly exchanges of various levels and areas, and deepen political mutual trust, Wang said, adding that China welcomes Panama's active participation in the Belt and Road Initiative.

The establishment of diplomatic relations did not come as a surprise for Wu Hongying, director of the Latin America office of the China Institute of Contemporary International Relations.

"Both the politicians and business people in Panama have witnessed China's increasing influence and regard it as an active and responsible power," Wu said.

The establishment of diplomatic ties was also interpreted by some analysts in Panama as a historic move which will open up a promising prospect for the comprehensive cooperation between the two countries.

Julio Yao, a professor of international law at the University of Panama, said that the decision has great significance for both Panama and China.

During an interview with Xinhua, Yao congratulated the Varela administration for taking the step of establishing diplomatic relations with China, which, he stressed, was not easy.

The expert, who helped negotiate the 1977 Panama Canal handover treaty, said that the move can be seen a gesture of independence in the country's diplomatic decision-making.

Meanwhile, Yao said that the move opens a wide range of cooperation opportunities between Panama and a major global economic power.

"It will give a boost to Panama's trade growth, revenue increase as well as scientific and technological development," Yao said.

He believes that China can contribute a lot to Panama's technological innovation, especially as far as the Panama Canal is concerned.

"It's a decision, in which Panama has much to gain and nothing to lose," Yao said.